I hope that everyone had a fantastic fall, and you all are starting to enjoy the holiday season, which has quickly sprung on us! It's a time to reflect on the year that's almost in the rearview mirror and start planning for the year ahead. It gives us all a chance to start thinking about new goals and objectives as well as what we might do to make one final push to finish the year strong.

From an insurance standpoint, fall can also be extremely interesting; because it's peak Atlantic hurricane season, what happens in the fall can have a material impact on the year ahead.

It's simply astounding to think about what a difference a year can make in market conditions, and how the environment we're operating in today differs from a year ago. I distinctly remember this time last year — we were all looking forward to the end of the year and what was arguably the hardest market environment we have traded under in our careers.

2024: Expectation vs. Reality

The end of 2023 was a time of both exhaustion and jubilation, in that we all knew the market would improve in early 2024. What we failed to appreciate as 2023 came to a close was how quickly out the gate the market would start to turn and how much easier 2024 would feel compared to 2023. I'm sure many of us have tried to erase 2023 from our memories, especially those on the buyer or broker side of the house, as it was a time where capacity was the commodity we all needed at whatever pricing and terms and conditions we could secure it.

Our excess and surplus (E&S) large property rates finished 2023 averaging well north of 20% up; and it was the tail end of five years of hard market conditions — the longest and most prolonged hard market in property insurance history.

The expectation was that the large account E&S market would start 2024 relatively flat with reductions in the low-single-digit range. The reality of 2024 was led early by Lloyds but was quickly adopted stateside: A significant push by all markets to write more business, maintain market share and still achieve double-digit growth.

The result of this mentality is that carriers quickly drove rates down deal by deal in the 5% to 20% range for larger E&S risks. Before the first quarter ended, the buyers' market had set the pace for the year ahead. Underwriters remained disciplined in 2024 and focused the conversation on rate adequacy as well as correct retention levels which, is what continues to drive the market today.

I'll quickly caution you that when 2024 wraps up, I don't want to imply that it is a soft market and that carriers did anything they could to write business. In fact, 2024 was more stable than most insurance cycles and years past. Carriers fought hard to retain the business they could, but certainly held on to terms and conditions that are important to them and their long-term profitability.

In my professional opinion, 2024 has been marked more by consistency in underwriting and in stabilization as opposed to a free-for-all of rate decline and broadening of terms and conditions. When we wrap up the year, we'll likely categorize it as a year of managing carrier signings on a deal-by-deal basis and one in which rates almost universally averaged 5% to 15% down for most asset classes, despite some outliers that pushed rates down closer to 20% on certain deals.

It's important to remember that every account has its own story, so if you received an increase or less-than-average reduction, there are likely some very simple explanations as to what circumstances drove that result.

Enter the Hurricanes

The human and economic impact of these storms is tragic, and my thoughts and prayers certainly go out to those impacted by these storms. My favorite part about property insurance is that we provide a safety net that allows customers to be made whole when the worst happens, so I sympathize with those who didn't have flood insurance and have seen their homes and lives destroyed by these storms. If you have the means, please provide support to relief efforts so that people can start putting their lives back together as best they can.

Hurricanes Helene and Milton have made the end of the year more interesting from an insurance standpoint. But in the absence of further storm activity, the year looks to be another very profitable one for most major carriers, and these storms are likely to have little impact on the trajectory of the market. There's some concern that Milton — more than Helene — will create an earnings event for some major capacity providers, but that's still to be determined as the loss estimates from Milton get a little more finite.

Initial predictions are showing that Milton, more so than Helene, is expected to slow rate reductions in key Tier 1 Wind areas in 2025, which means both of these storms will have a more regional impact than a broader market change. Combined Gallagher Re's early estimate is for Milton and Helene related losses is $35B to $50B. Further, Gallagher Re estimates 2024 will be another year $100B catastrophic (CAT) losses (for the fifth straight year), but carrier balance sheets and profit margins are set up to absorb years of this scale, based on the current rate adequacy embedded in most deals. This $100B figure will be enough to keep carrier discipline around terms and conditions and also stabilize reinsurance rate movement in the CAT treaty space.

As the year concludes and 2025 starts to unfold, expectations are that we'll see another year much like 2024. Clients should expect to see rates on average down 10% to 15% across large E&S property, but places such as Florida, Louisiana, coastal Texas and the Carolinas might see a relatively flat rate environment given Milton and Helene.

These storms have kept the world on notice that these storms are large, real and happen with more frequency. The insurance data race is on, and it's suggesting that carriers are getting a lot better at predictive analytics and actuarial tools. These tools are likely to create a more stable trading environment for all, without allowing things to go full swing into a soft market fire sale.

A Look Ahead

By the time you read this, the year will be nearly over and in the absence of other major CAT events, the outlook for 2025 by specific asset classes and type of business isn't guaranteed but is expected to trend in line with below:

Named Windstorm (NWS) CAT Aggregate in Florida and Tier 1 Wind Zones at Large

Capacity won't be an issue (sans the personal lines market) but rate declines are expected to remain slightly below the market average and trend flat to 7.5% down, deal by deal. We expect carriers to maintain underwriting discipline, control line size and pay close attention to aggregate loss exposure in various cat regions. We expect deductible levels to remain static and carriers to focus more on writing accounts that are better protected from large surge events relative to others.

All things considered, the space will remain competitive for buyers, but certain pockets will be far more challenging than others.

Valuation Issues and Insurance to Value (ITV)

As 2024 unfolded, valuation became less of a talking point, but the issue hasn't gone away.

Carriers are acutely aware that bad data in the modeling systems doesn't, produce accurate results and rating an account off a reduced replacement cost value doesn't give them the premium they need to make a long-term profit.

The good news is that many clients took this conversation seriously over their last few renewal cycles and corrected their values by increasing them to levels that won't require meaningful change outside of smaller inflationary adjustments. We do need to keep in mind that— particularly in the multi-family world — valuations are still very low, and many clients in that space still will be required to make meaningful adjustments to continue to catch up.

In the absence of making those adjustments, we expect to see carriers mandate more margin clauses and less scheduled limits in 2025. We also anticipate that many clients that lost blanket limits in 2023 will be able to secure more capacity with blanket limits on their program in 2025.

Wood Frame Construction

Again, what a difference a year can make. This space has seen a few players come and go and has certainly seen adjustments to rate, terms and conditions, and site security over the past few years. As I write this, we have more capacity in the market than ever before and more lead markets, and many carriers vying for a lead position on various accounts.

The result has spurred competition and dropped rates an average of 20%, and the market has become more receptive to alternative security options for job sites. The only setback we've noted is on the client side, with most developers punting projects to 2025 to better assess the future economic and interest rate environment, in the hopes that things improve and make the financing side of development a lot easier.

High-crime-score projects and heavy structural renovation projects are still challenging, but even those deals are starting to see improvement in the availability of capacity that was once heavily restricted.

CAT Aggregate for Earthquake (EQ)

This market segment is tracking in line with the broader marketplace. Rates are down 5% to 15% for most customers, and we're starting to see some of the larger capacity providers chase business again by offering larger limits at lower costs so they can control more of the placement. This is a bit of a 180-degree shift from 2023, which required many of the larger-limits players to trim line size and it made it difficult for many clients to get the same limits they were accustomed to buying in years past. The expectation is that barring any major EQ related CAT event, the market will remain competitive in the year ahead.

Multi-Family

I just spent a few days in Atlanta with one of our long-term multi-family clients, and one of the carriers we met summed up this space perfectly: The risks from one to the other are homogenous, so clients that do "all the right things" will benefit most from improving market conditions.

You might ask yourself what "all the right things" means, and you'll be pleasantly surprised to understand how easy it is to accomplish, in the view of this particular underwriter:

  • Have good valuations / insurance to value and make continued improvement that keeps up with inflation. Don't have every location in various geographies have the same cost per square foot metrics.
  • Have a tenant liability program.
  • Have rules that tenants follow that improve risk management and reduce insurance property risk, and enforce those rules with a zero-tolerance policy.
  • Don't use your insurance policy as a property maintenance policy and have public adjusters or roofers chase you for business and maintenance issues you should be able to fix on your own at limited cost. The regulatory and legal environment around these types of claims in our industry is quickly becoming a hot talking point that will continue to unfold negatively in states and areas where insurers feel like the states aren't protecting the rights they should be afforded under their policy contracts.
  • Put some skin in the game by taking retentions that keep the carriers out of the attrition and allow them to feel like your policy is being used to protect your property when the worst-case scenario happens

By focusing your risk management strategy on these items, you'll likely see increased carrier competition and declining rates in the year ahead, barring a really challenging loss history.

Multi-family will also be a space where underwriters continue to focus on trading rate and premium for what the market feels are appropriate deductible levels in the major loss categories (all other perils, severe convective storms, cat, water damage and flood).

As we wrap up the year, I hope you all enjoy the holidays and get a chance to celebrate them with colleagues, friends and family. While the market is still a bit fragile because of the lack of carrier profits over the last six years, the writing on the wall points to more favorable times ahead for buyers and carriers competing for the better business. We'll see increased stability that will spur more carrier competition and — in the absence of further insured loss events — we'll likely see a continued easing of rates in almost every geography and asset class traded in the E&S lines market.

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